Article Highlights:
- Year-end Tax Strategies
- Prepay Taxes if Not Subject to
the AMT
- Pay Off Medical Installment
Payments
- Advance Charitable Deductions
- Be Cautious of Overall Itemized
Deductions Phase Out
- Prepay Tuition Expenses
- Fast Write-Offs For Business
Purchases
Year’s
end is rapidly approaching, but there are still some tax-advantaged moves you can
make before the New Year. If you itemize deductions, you might prepay the next
installment of your property taxes, pay off medical bills, and pay the fourth quarter
state-estimated tax payment in advance. You might prepay college tuition to
maximize education credits, and purchase business equipment to take advantage
of the more beneficial write-offs available in 2013.
Prepay Next Installment
of Property Taxes
– Usually, property taxes are billed in a fiscal year and can be paid all at
once or in multiple installments. If you have been paying the current tax bill
in installments and one of those installments is due in 2014, you can pay it before
year’s end and take the deduction on your 2013 return instead of on 2014’s
return.
Pay State-Estimated
Taxes in Advance
- If your state has a state income tax, the state income tax paid during the
year is deductible as an itemized deduction on your federal tax return. The
fourth quarter estimated installment for 2013 is due on January 15, 2014
for most states. If additional state income tax payments in 2013 can benefit
you as an itemized deduction, paying that January installment before year’s end
would allow it to be deducted in 2013.
Caution: Taxes are not deductible if you are subject to the
alternative minimum tax, and prepaying state income and property taxes might
not provide any benefit.
Pay Off Medical
Bills
– If you are paying medical expenses on an installment plan, you itemize your
deductions, and your medical expenses for 2013 will exceed 10% of your adjusted
gross income (AGI), or 7.5% for tax filers aged 65 and over, it could be
beneficial to pay off the balance you owe. You can pay off those medical
expenses, even with borrowed funds, before year’s end and increase your
deductions for 2013.
Make Charitable
Contributions
– The holiday season is historically a time for making charitable contributions
to qualified organizations, and if you are itemizing your deductions, the
donations you make before the end of 2013 can help to reduce your 2013 tax
bite. If you regularly tithe to a house of worship, you might even prepay part
of your 2014 commitment and deduct it in 2013. This can be beneficial for those
who only marginally itemize their deductions.
Caution:
Beginning in 2013, higher income
taxpayers will have their itemized deductions phased out, so if you are subject
to the phase-out, these planning suggestions may not provide the benefits
expected. The income threshold for the phase-out is $300,000 for joint filers,
$250,000 for singles, $275,000 for heads of household, and $150,000 for married
individuals filing separately.
Prepay College
Tuition
– If qualified tuition is paid during 2013 for an academic period
that begins during the first three months of 2014, the education credit is
allowed for those expenses in 2013. Thus, if your higher-education tuition
expenses for yourself, your spouse, or your dependents to date for 2013 have
not been enough to maximize your education credit for 2013, you might consider
prepaying the tuition for the first quarter of 2014.
Purchase Business Equipment – If you have a
business, and you anticipate purchasing additional equipment for the business,
it may be appropriate to make the purchase(s) before the end of the year to
take advantage of the bonus depreciation deduction and/or the Sec 179 expensing
deduction. Equipment includes machinery, computer systems, communication
systems, office furnishings, etc. Unless extended by Congress, the bonus
depreciation will end after 2013, and the maximum Sec 179 deduction will
decrease to $25,000 from the current $500,000.
If
you have questions related to any of the suggested strategies, please call our office.
(601) 649-5207
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